FROM THE TELEGRAPH OF 7 FEBRUARY 2006
Flamboyance
resumed
Lakshmi Mittal
is a rich man. And he likes not just to count his mohurs but to flaunt them
too. He rented a chateau for the wedding of his daughter; more recently he
bought a 12-bedroom residence in Kensington Palace Gardens, arguably the
world’s most exclusive street. Having become the world’s biggest steel producer
in 2004, he has now made a hostile bid for Arcelor, the largest steel company
next only to his own, after Guy Dollé, its chief executive, rebuffed his
friendly overture. Those who have watched his style will wonder if this is
another spectacle. Those who look for his economic logic will wonder how he can
add value to Arcelor, which is a well run company. The takeover would be good for
him; it would turn Mittal Steel, now a family business, into a widely held
European company. But what would it do to Arcelor? This consideration is
foremost in the minds of those members of European governments who are
concerned about his bid. Whilst their opposition has been portrayed as
parochial and small-minded, it is no secret that one way of adding value to
acquisitions is by downsizing the labour force. Even before bidding for
Arcelor, Mittal had planned to relieve a quarter of his workers worldwide by
2010. The trade unions of Arcelor in France, Spain and Luxembourg have
vehemently opposed Mittal’s bid; their concern about employment would be shared
by their governments. The other concern, especially amongst shareholders, will
be the debt Mittal would incur to buy Arcelor. The present count is that he
will borrow $14 billion to bid $22 billion; if the price goes up, so will the
debt. Shareholders will ask what they will get after the creditors are looked
after. Their gain would, of course, be immediate if they accepted Mittal’s
offer now, which is 27 per cent above the pre-bid share quote. It is possible
that financial institutions will cash out and give Mittal the necessary shares
to take control. But to date, Mittal has only succeeded in raising hackles. He
must also have some supporters, but he has to acquire some more, in the right
quarters, and fast. He has been busy calling on the people in power in Paris
and Brussels. But besides this lobbying, he will have to build up a stronger
case for the merger. His acquisitions hitherto have been in Eastern Europe,
Central Asia, China, South-east Asia and the US; Arcelor would fill a gap in
Europe and fit well into his global empire. There will no doubt be economies in
administration and marketing. He must prove that what is good for Mittal is
good for Europe. Although Mittal left India long ago, Indians love success even
of distant Indians, and will watch with fascination how he plays his latest and
biggest game.
